Planning for what happens to your assets after you pass away is an important process. If you’re like most people, you want to make sure the people you care about most are taken care of after your death. Despite the importance of estate planning, however, some people are still of the mistaken belief that it’s only for wealthy individuals. The truth is that estate planning is important for anyone who wants to leave a legacy for his or her loved ones.
In fact, many people refer to estate planning as legacy planning. It’s not so much about the estate as it is about your plans and gifts for your family, friends and favorite charity. Like any good plan, yours should define specific goals you’d like to accomplish. Below are some ideas for objectives to consider for your legacy plan:
Can you help your loved ones be financially stable?
One of the most meaningful things any estate plan can do is to make sure those you leave behind are well taken care of. If providing financial stable for your loved ones is a big goal for you, you’ll need to make a few decisions.
For instance, who do you want to receive your assets? You’ll likely need to decide which loved ones need the most support. You may have a spouse, children or even grandchildren who are financially dependent on you. Or you may not have dependents but still may wish to provide loved ones with financial benefits. Take time to identify heirs and determine how much they should participate in your estate.
After you decide who should receive what, you’ll then want to think about how to leave it to them. There are a couple of financial tools that can help you do this while minimizing the associated risks. For example, you could utilize a trust, which helps your assets avoid probate. A trust can also help you maintain control over asset management and distribution, which could be important if your heirs include minor children.
You might also consider purchasing life insurance to maximize the amount you can leave behind. Life insurance avoids probate, and the death benefit is usually paid quickly. That could be helpful in providing your loved ones with immediate liquidity to meet financial obligations.
How can you reduce financial risk?
Even if you don’t qualify for estate taxes, there are still significant financial threats your estate could face. For example, the probate process can delay the time it takes to distribute your assets. On top of that, the process can also rack up administrative and legal fees that could erode the value of your estate.
If you have a 401(k) or an IRA, then taxes are something you might want to consider. When your beneficiaries inherit these assets, they might face a high tax obligation if they take the funds in one lump-sum payment. It’s important to communicate to your heirs all the available options. They may be able to take distributions over several years or even their lifetime, which could spread out the tax payments.
Debt accumulated due to end-of-life medical treatment or long-term care is also something you might want to consider. These services can be expensive, and if you have large medical bills before you pass, your loved ones may have to pay for them out of your estate. Long-term care insurance could help you cover these costs and protect your legacy.
What will happen if you become incapacitated?
Another key component of legacy planning is preparing for what will happen in the days, weeks or even years before your death. While it might be unpleasant to think about, there’s a chance you’ll become incapacitated as a result of diseases like Parkinson’s or Alzheimer’s. This means you’ll be unable to communicate your health care and financial wishes. It also means that your family may have to make those decisions for you. And there’s no guarantee they’ll make the choices you’d have wanted.
There are ways to avoid this, however. Documents such as a living trust, a power of attorney or a living will can help ensure your wishes are being followed even if you are unable to communicate or make your own decisions. Talking to a financial professional can help you determine which of these will be most beneficial for you.
Ready to make a legacy plan? Let’s talk about it. Contact us at Carstens Financial Group for more information. We welcome the chance to help you analyze any remaining questions and develop a strategy. Let’s start the conversation today.
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